The National Debt Is Sooooooo Big

Posts in this series

The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation
Reflections On The Deficit Myth

Chapter 3 of Stephanie Kelton’s The Deficit Myth addresses the National Debt. It’s a very big number, and politicians use it to terrorize voters. Kelton tells a story about Senator Mike Enzi, R-WY, complaining about a CBO budget outlook report, saying it should put in the zeros instead of using the word “trillion”. And that’s how seriously we should take the problem. Remember what we learned in the last post: money is a debt on the books of the US government, but it’s also an asset in the hands of a currency user. That means that the National Debt tells us how much we collectively have received in assets from the Treasury.

Kelton says that fear of the National Debt is shared by everyone in and near government across the ideological spectrum, politicians, staffers, wonks and think-tankers. When she was Chief Economist for Bernie Sanders on the Senate Finance Committee, Kelton questioned the myth.

One of the most eye-opening things I learned came from a game I would play with members of the committee (or their staffers). I did this dozens of times, and I always got the same incredible reaction. I’d start by asking them to imagine that they had discovered a magic wand with the power to eliminate the entire national debt with one flick of the wrist. Then I’d ask, “Would you wave the wand?” Without hesitation, they all wanted the debt gone. After establishing an unflinching desire to wipe the slate clean, I’d ask a seemingly different question: “Suppose that wand had the power to rid the world of Treasuries. Would you wave it?” The question drew puzzled looks, furrowed brows, and pensive expressions. Eventually, everyone would decide against waving the wand. P. 77. [1]

Wiping out the National Debt means eliminating Treasuries, and that exposed the contradiction at the heart of the myth of the Very Scary Debt. We can’t get rid of Treasuries! But the raw number scares voters so many people continued to rant about the National Debt. They never asked why voters were scared, or questioned their role in creating that fear.

Intuitively, if deficits aren’t a problem unless they cause inflation, then the national debt isn’t a problem unless it causes inflation. In the same way interest on the national debt isn’t a problem unless it causes inflation. Kelton acknowledges that there may be limits on the size of the national debt, usually discussed in terms of the ratio between the national debt and the GNP. The US is nowhere near the size of the debt to GNP ratio of Japan, for example, so there’s no immediate problem. Assuming there is some limit, Kelton turns to the various ways we could eliminate the national debt.

One way would be to run government budget surpluses, as we did when Bill Clinton was President. We could easily do that by raising taxes on the rich and their corporations, slowly depleting their total wealth. That’s a good idea on its own terms, because it would reduce their political and economic power. Kelton says that in the past when the government has run surpluses for several years the result was depressions. I would add that if we did raise taxes we’d be destroyed in the shrieks of the rich saying that their money was being used to pay for social programs like Social Security.

Or, the Fed could get rid of all of the Treasuries with just a few clicks on a keyboard, by reducing the number in the Treasury Securities account and increasing the numbers in the bank account of the holders of the Treasury securites. Economists call this monetizing the debt.

Or, we could do it by continuing to spend as we see fit subject to the inflation constraint, but stop issuing new Treasuries. As the old ones mature, the Fed pays them by crediting the accounts of the holders with green dollars. We could stop that at any time we reached a level of debt that wouldn’t frighten even the most fearful Americans. or at some higher level. [2]

Once getting rid of Treasuries would have caused a problem, because the Fed used the market in Treasuries to control interest rates. That is no longer the only control mechanism available to the Fed. [3] But then what? Kelton discusses an article by Eric Lonergan, an economist and fund manager. Lonergan asks what would happen if Japan monetized all its bonds. I quote his analysis in full:

First, let’s go through the balance sheet effects: 1. The government now has no debt. 2. The value of the Japanese private sector’s assets is unchanged – they used to hold JGBs [Japanese Government Bonds], now they hold the same value in cash. So overnight, the government’s debt is eliminated, and the private sector’s net wealth is unchanged.

The income effects are also interesting: 1. The government’s budget position improves. 2. The income of the private sector falls because bonds paying interest have been replaced with cash holding none.

So what happens to the economy?

Most people tend to say, “hyperinflation”, but that makes little sense. Why on earth would the Japanese household sector rush out and buy things when their interest income has fallen, their wealth is unchanged, and they are used to falling prices. The private sector already has a high wealth to GDP ratio and are spending less than they produce (which is precisely why the government runs a deficit).

The Yen might weaken because the yield on overseas assets has risen relative to Japanese assets, but this spread is hardly offering much compensation for exchange rate risk. My conclusion is that nothing would change in Japan if you had 100% monetization of the stock of JGBs!

The takeaway is that getting rid of Japanese government debt wouldn’t affect the economy at least in the short term. Two possible problems: a) less spending because bond income disappears from the economy; and b) weakening of currency in international markets because there are higher return available on the bonds of other countries. In the case of the US, we can add that cash previously held as Treasuries suddenly isn’t producing any return, so its owners look elsewhere for returns. That might mean an increased purchases of assets by foreigners; purchase of the debt of other countries; or something else. But that’s not all bad, and I don’t know enough to work it out.

Kelton accepts Lonergan’s logic. Paying off US Treasury Securities is possible and likely would have minimal short-term effects. Late in the Clinton Administration the US ran budget surpluses, to the point that White House economists prepared a draft report titled Life After Debt. Here’s a discussion by David Kestenbaum of Planet Money. This report got labeled PRELIMINARY AND CLOSE HOLD OFFICIAL USE ONLY”, and Planet Money got it through FOIA. Then the Republicans cut taxes for the rich, with the usual pennies for the rest of us, so the problem evaporated.

In sum, the national debt isn’t a problem as long as it doesn’t lead to inflation. A lesser constraint might be the impact on the value of the dollar, which might affect international trade in unpredictable ways.

======
[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] This is a good example of Kelton’s style. As you can see, it’s clear, simple, and direct English prose, the highest praise my high school English teacher, Brother Daniel, ever bestowed.

[2] Here’s a recent tweet from Scott Fullwiler, an MMT economist:

The core point is it should be done by the [Central Bank]—there’s no reason why the appropriate (for mkt conditions) change in risk-free, liquid securities should equal size of govt debt/surplus, & no reason for appropriate maturity structure to be same as what cost-minimizing [Treasury] chooses.

[3] For example, the Fed began to pay interest on the reserves commercial banks are required to keep at the Fed. There is a full explanation starting at P. 117.

[4] There are, of course, distributional issues for both Treasury Securities and for the interest they pay. This is a normative issue best dealt with by politicians, and not economists. One consideration is that many people benefit indirectly from interest on Treasuries through money market funds, investments by pension plans and direct purchase, because Treasuries are absolutely safe.

Reflections on The Deficit Myth

Posts in this series

The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation

The first three posts in this series address the Introduction and the first two chapters of Stephanie Kelton’s The Deficit Myth. In this post I add her definition of money and some of my thoughts, and invite readers to do the same, either questioning points she made or applying her ideas to our society.

1. Modern Monetary Theory starts by asking one question: how does money work in a fiat currency nation. Kelton defines money in her first published paper: The Hierarchy of Money. This is a very readable discussion of the range of opinions on this subject, focused on the argument between the Metalists and the Chartalists, which began over 400 years ago. [1] Kelton starts with a definition of money. [2]

Money represents a debt-relation or promise to pay that exists between human beings. It cannot be identified independently of its institutional usages, because money represents a social relationship. … The creation of money, then, is simply the balance sheet operation that records this social relation. (Emphasis in original.)

According to Kelton, the Chartalists called money any token representing a debt relationship. Thus, a postal stamp is a money: it represents an asset to the owner and a debt to the Post Office which is satisfied by delivering a letter. A plane ticket is money: it represents the obligation of the airline to fly the holder to a particular place at a particular time. Bank deposits are money: they are a liability of the bank which must deliver money at the direction of the account holder. The rule for creation of money is the agreement by one person to hold the debt of another. [2]

Now consider the dollar. The dollar is a creation of the federal government. Kelton writes:

Thus, State money is created when the public agrees to hold (as an asset) state-created money (a liability to the State) which is required in payment of taxes.

This explains why currency and other forms of dollars (bank deposits, treasury securities, and bank reserves at the Fed) are liabilities of the federal government. We users agree to hold these dollars as assets. We can use them to acquire different forms of assets from sellers, obtain services from providers, and pay taxes. When the government collects taxes, it matches that asset with a corresponding liability and clears to zero.

The point of this exercise is to demonstrate that money is a balance sheet representation of the debt/asset relations between human beings, a social relationship. That understanding is crucial to the arguments advanced in The Deficit Myth.

2. Kelton calls for a Copernican Revolution in the way we think about money. This, of course, is a reference to the Copernican Theory, which said that the earth revolves around the Sun, and not vice versa, despite what we see with our own eyes. The ramifications of the Copernican Revolution eventually led to a complete change in our understanding of the nature of reality. [3] The revolutionary change she describes is that US government spending is not constrained by its ability to tax and borrow, but by the actual resources available, labor, material, and the organization of production. One important part of The Deficit Myth is the description of the kinds of changes we have to make in our own thinking. But there are many more revolutions. Here are three.

a. Congress ducks policy arguments by turning them into discussions of budgets or into political games. That never made sense, because all budgeting is about priorities. Games like pay-fors or one-upmanship on military spending were always perverse, but both parties pretended these were real arguments. They aren’t. MMT strips away one more layer of pretense.

b. Mainstream economists refuse to look honestly at MMT. Marion Fourcade and her colleagues at Berkeley published a paper examining the economics profession titled The Superiority of Economists, a devastating critique of their pretensions. Among other things, economists tell us that markets should make our decisions about allocation of resources, and that anything that interferes with the operations of markets is harmful to society. When government spending is between 35 and 45% of GNP prior to the pandemic, it’s stupid to argue that markets are the best form of allocation of resources. When capitalists exercise outlandish control of government spending priorities, it’s stupid to argue that markets should determine what we can and can’t have.

Many economists hold themselves out as experts on all sorts of things, including the pandemic. In the MMT world, as Kelton points out, economists would concentrate on predicting the inflationary effect of spending choices, and get completely out of the business of telling us how we should make decisions about allocation of resources.

c. Historically, people thought that the most important problem facing an economy was to accumulate capital and turn it to productive use for the benefit of society. The chosen solution was Capitalism, and to encourage capitalists to invest, we allowed them to reap outlandish profits through monopoly, grants from the Crown, and other favors, while ignoring the fraud and corruption those policies entailed. This continued in the US, with gigantic giveaways to railroad and mining companies, ludicrous levels of patent protection, and grotesquely unfair tax rules, while mostly ignoring or even praising graft, corruption and fraud. The results of coddling capitalists are rubbed in our faces every day.

MMT gives us space to think about the way society could operate to make our lives better. It allows us to make decisions about what we need and want. We do not have to accept whatever is on offer from Capitalists. We can decide based on our principles, morals, values and dreams. MMT puts us in charge, and frees us from the domination of the rich. It opens the door to the “euthanasia of the rentier”, as Keynes calls it in The General Theory of Employment, Interest and Money.

Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.

=====
[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] Fun fact, Adam Smith may have held Chartalist views. Kelton quotes him thus:

A prince, who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind, might thereby give a certain value to this paper money.

[2] Kelton doesn’t go into the history of money, but this BBC article is a fascinating picture of trade in Ancient Sumeria, and gives a tantalizing hint about the origin of money in record-keeping and accounting for trade.

[3] For a fascinating and occasionally comprehensible discussion of this new understanding, see Reality Is Not What It Seems, by Carlo Rovelli.

MMT On Inflation

Posts in this series
The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth

The second chapter of Stephanie Kelton’s The Deficit Myth deals with inflation. In Chapter 1, Kelton explains that the deficit is not a constraint on government spending. Instead, inflation is the important constraint. A deficit does not prove that the federal government is overspending. Only an increase in inflation proves Congress is overspending. Kelton says Congress shouldn’t tax and spend so as to deliver a balanced budget. Congress should spend and tax so as to deliver a balanced economy, one that serves all of us. She says that historically we have not done this, that we have chosen to focus of deficits and in so doing our economy has not served us well.

Definition and Description of Inflation

Inflation means a continuous rise in the price level. A bit of inflation is considered harmless and even something economists like to see in a healthy, growing economy. But if prices start rising faster than most people’s incomes, it means a widespread loss of purchasing power. Left unchecked, this would mean a decline in society’s real standard of living. In extreme cases, prices can even spiral out of control, gripping a country in hyperinflation. P. 44.

The danger of eroding incomes explains why everybody worries about inflation, and explains why politicians can use the threat of inflation to terrorize voters. It works, even though the problem for more than a decade hasn’t been too much inflation, it’s been too little. Ever since the Great Crash inflation has been less than 2% annually despite efforts of the Fed.

Kelton says that economists think of inflation as either cost-push or demand-pull. Demand-pull inflation occurs when consumer spending rises faster than the economy can produce goods and services. That hasn’t been a problem for a long time. Cost-push inflation can arise from disasters, which reduce the supply of something; from pricing power, as in the case of Big Pharma with its patents and trade secrets; or from workers gaining market power and demanding higher wages which businesses pass on to consumers. That last one is the only fear mainstream economists suffer, as far as I can tell.

The dominant theory of inflation stems from Milton Friedman’s monetarism:

According to Friedman, “inflation is always and everywhere a monetary phenomenon.” What he meant was that too much money is the culprit in any inflationary episode. If prices weren’t stable, it was because the central bank was trying to force the economy to create too many jobs by allowing the money supply to increase too rapidly.

The early neoliberal Friedman insisted that the Fed must never interfere with the workings of the market. Specifically, the Fed should not try to reduce unemployment below a certain level, which came to be called NAIRU, the non-accelerating inflationary rate of unemployment. Friedman thought there had to be some minimum level of unemployment in the economy. [1] The Fed bought into this view, as did politicians of all stripes. They all agreed that to keep prices stable, the US has to accept a certain level of unwanted unemployment. And to be on the safe side, maybe a bit higher level of unemployment. In practice, Congress dumped the problems of inflation and unemployment on the Fed.

But problems arose. The NAIRU isn’t visible or measurable. It can only be seen in retrospect. And now we are pretty sure there isn’t a clear relationship between inflation and unemployment, as the Fed assumed. [2] The Fed Chair, Jerome Powell, freely admitted to Rep. Alexandria Ocasio-Cortez that the Fed has been wrong about NAIRU, but defended its use on the grounds that “We need to have some sense of whether unemployment is high, low or just right.” P. 53.

2. The Problem of Unemployment

It turns out that the Fed used the purported correlation between inflation and unemployment as its primary tool for controlling inflation, ignoring all other causes of inflation. When the economy heated up and unemployment dropped, workers gained market power, and their share of national income increased. That led the Fed to raise interest rates leading to a tightening of the economy and usually a recession, as the following chart shows.

Gray bars indicate recessions.


Kelton calls this a “human sacrifice”, forcing some people out of the workforce when they want to work and can be productive. She thinks we are asking too much of the Fed. It can’t spend money into the system; only Congress can do that. All the Fed can do is change the cost of borrowing. If unemployment is too high, the Fed can make borrowing cheaper, but it can’t force anyone to borrow. Usually when unemployment is high, no one wants to borrow. I note that this was what happened after the Great Crash. The Fed cut interest rates to zero and lowered bank reserve requirements, hoping to increase money going into the economy. It didn’t work.

3. The Job Guarantee

Kelton argues that a better way to deal with unemployment is a job guarantee. Every person who wants to work should be able to get a decent job with decent pay and decent benefits. If the private sector won’t provide those jobs, the government should. [3] Kelton discusses this idea and its foundations.

It would probably be impossible for Congress to monitor the economy closely enough to manage full employment by tweaking taxes and spending. A job guarantee would act as a safety-valve and an automatic stabilizer for the economy and help solve this problem, leaving the Fed free to focus on inflation. If the private sector needs all the workers it can find them. If not, the government hires people to do jobs that need doing. There is plenty of work that needs doing, and, as Kelton pointed out elsewhere, we can always use more flowers in our parks and boulevards.

4. Preventing Inflation

So how should Congress budget knowing that the only effective constraint on spending is inflation? What would change? The way Congress currently works is that every bill that calls for expenditures gets a score from the Congressional Budget Office that assesses the impact of the expenditure on the deficit over a ten-year period. If inflation were the constraint, then the CBO would offer a score based on the probable impact of the expenditure on inflation. If the economy is, as now, operating well below its capacity for producing goods and services, the possibility of inflation would be low.

If the economy is close to capacity, either as a whole or in part related to the area of expenditures, then Congress has to make hard calls. How important is the expenditure? Can we create “fiscal space” for the expenditure with taxes? For example, in the case of the entire economy humming along, a general income tax hike would take money out of most people’s hands so they would not be buying as much, leaving room for the government to buy more. If there is a bottleneck, a more focused tax or some other step might be necessary.

Conclusion

MMT recognizes that inflation is a crucial problem. It shows how it arises and how we should protect ourselves from it.

=====
[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] Marx said that the reserve army of labour is a necessary part of capitalism. Hmmm.

[2] This relationship is embodied in the Philips Curve. I discuss it here.

[3] Other economists favor a universal basic income. Both have the added benefit of freeing workers from abusive or irritating employers. Your family won’t starve if you walk out on a bad situation.

Debunking The Deficit Myth

Posts in this series
The Deficit Myth By Stephanie Kelton: Introduction And Index

The first chapter of Stephanie Kelton’s book The Deficit Myth takes up the biggest myth about federal government finances, the idea that federal budget deficits are a problem in themselves. The deficit myth is rooted in the idea that the federal government budget should work just like a household budget. A family can’t spend more than its income will support. The family has income, and may be able to borrow money, and the sum of these sets the limit on household spending. Those who propagate the deficit myth say government expenditures should be constrained by the government’s ability to tax and borrow. First the government has to find the money, either through taxes or borrowings, and only once it has found the money can it spend. The way things actually work is different.

In the real world, it goes like this. Congress votes to direct an expenditure and authorize payment. An agency carries out that direction. The Treasury instructs the Fed to pay a vendor. The Fed makes the payment by crediting the bank account of the vendor. That’s all that happens. It turns out that the real myth is that the Treasury had to find the money before the Fed would credit the vendor. That’s because the federal government holds the monopoly on creating money. U.S. Constitution Art. 1, §§8, 10. In practice this power is given to the Treasury, which mints coins, and to the Fed, which creates dollars. [1]

It also turns out that for the most part, the Treasury does cover the expenditure by taxing or borrowing, but because the government is an issuer of dollars, it isn’t necessary. [2] In the last few months, the Treasury has been selling securities and the Fed has been buying about 70% of them. Here’s a chart from FRED showing Fed holdings Fed holdings of treasury securities. The Fed may or may not sell those securities to third parties. If it doesn’t, they will be held to maturity and remitted as a dividend to the Treasury.

The recognition that spending comes first, and finding the money comes second is one of the fundamental ideas of MMT. Kelton describes her meeting with Warren Mosler who introduced her to these ideas; the stories are amusing and instructive. I particularly like this part:

[Mosler] began by referring to the US dollar as “a simple public monopoly.” Since the US government is the sole source of dollars, it was silly to think of Uncle Sam as needing to get dollars from the rest of us. Obviously, the issuer of the dollar can have all the dollars it could possibly want. “The government doesn’t want dollars,” Mosler explained. “It wants something else.”

“What does it want?” I asked.

“It wants to provision itself,” he replied. “The tax isn’t there to raise money. It’s there to get people working and producing things for the government.” Pp. 24-5.

Put a slightly different way, people accept the government’s money in exchange for goods and services because the government’s money is the only way to pay taxes imposed by the government. Kelton says she found this hard to accept. She spent a long time researching and thinking about it, and eventually wrote her first published peer-reviewed paper on the nature of money. [3]

The monopoly status makes governments the issuers of money, and everyone else is a user. That fundamental difference means that governments have different financial constraints than households, and that it certainly isn’t constrained by its ability to tax and borrow. Kelton offers several interesting and helpful analogies that can help people grasp the Copernican Revolution that this insight entails.

Once we understand that government doesn’t require tax receipts or borrowings to finance its operations, the immediate question become why bother taxing and borrowing at all. Kelton offers four reasons for taxation.

1. Taxation insures that people will accept the government’s money in exchange for goods and services purchased by the government.
2. Taxes can be used to protect against inflation by reducing the amount of money people have to spend.
3. Taxes are a great tool for reducing wealth inequality.
4. Taxes can be used to encourage or deter behaviors society wants to control. [4]

She explains borrowing this way: government offers people a different kind of money, a kind that bears interest. She says people can exchange their non-interest-bearing dollars for interest bearing dollars if they wish to. “… US Treasuries are just interest-bearing dollars.” P. 36. Let’s call the non-interest-bearing dollars “green dollars”, and the interest-bearing ones “yellow dollars”.

When the government spends more than it taxes away from us, we say that the government has run a fiscal deficit. That deficit increases the supply of green dollars. For more than a hundred years, the government has chosen to sell US Treasuries in an amount equal to its deficit spending. So, if the government spends $5 trillion but only taxes $4 trillion away, it will sell $1 trillion worth of US Treasuries. What we call government borrowing is nothing more than Uncle Sam allowing people to transform green dollars into interest-bearing yellow dollars. P. 36-7.

It might seem that there are no constraints, but that is not so. Congress has created some legislative constraints on its behavior, including PAYGO, the Byrd Rule, and the debt ceiling, but these can be waived, and always are if a majority of Congress really want to do something. They also serve as a useful way of lying to progressives demanding public spending on not-rich people, like Medicare For All. We have to pay for it under our PAYGO rules, they say, while waiving PAYGO for military spending (my language is harsher than Kelton’s).

The real constraints are the availability of productive resources and inflation. The correct question is not “where can we find the money”, but “will this expenditure cause unacceptable levels of inflation” and “do we have the real resources we need to do this” and “is this something we really want to do. As Kelton puts it, if we have the votes, we have the money.

In my next post, I will examine some of these points in more detail. Please feel free to ask questions or request elaboration in the comments.

=====
[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] Art. 1, §8 authorizes the federal government to create money; §10 prohibits the states from issuing money. That leaves open, for now, the possibility that private entities can issue money. Banks and from time to time other private entities play a role in the creation of money, but I do not see a discussion of this in the book.

For those interested, here’s a discussion of the MMT view from Bill Mitchell. I may take this up in a later post. In the meantime, note that every creation of money by a bank loan is matched by a related asset. Thus, bank creation of money does not increase total financial wealth. In MMT theory this is called horizontal money. It is contrasted with vertical money representing the excess of government expenditures over total tax receipts, which does increase financial wealth. Here’s a discussion of this point.

[2] There are, of course, constraints on government spending, especially inflation and resource availability. We’ll get to that in a later post.

[3] Kelton cites the paper in a footnote: The Role Of The State And The Hierarchy Of Money.

[4] Compare this list to the list prepared by Beardsley Ruml, President of the New York Fed, in 1946.

The Deficit Myth By Stephanie Kelton: Introduction and Index

Posts in this series.
The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation
Reflections On The Deficit Myth
The National Debt Is Soooooo Big
The Wonkish Myth Of Crowding Out
MMT On International Trade
Social Security And Other Entitlements
Reviews Of The Deficit Myth

The last two chapters of Stephanie Kelton’s The Deficit MythThe Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy is now available, and I will be discussing it in a series of posts. [1]

Kelton lays out the structure of the book in her Introduction. She starts with a common bumper sticker approach to the federal deficit: Uncle Sam looking abashed while holding out his pockets to show they’re empty. That image dominates most discussion of budgeting in the US. It depicts an individual facing the limits of personal finance. It relies on this image to create panic about federal deficits. This is the dominant view among politicians of both parties. In a New York Times opinion piece, Kelton reminds us that a group of 60 Congressmen, 30 from each legacy party, are terribly worried about the deficit. This kind of deficit hawkery hit President Obama in 2010 after the weak financial stimulus offered by Democrats after the Great Crash.

That month, in his State of the Union address, he committed to a reversal of fiscal stimulus, telling the nation, “Families across the country are tightening their belts and making tough decisions. The federal government should do the same.” What followed was a sustained period of self-inflicted harm.

These 60 legislators learned nothing from the misery created by Obama’s turn to austerity, and just like Obama are prepared to hurt Americans in desperate need of assistance following the collapse of the economy, a pandemic, and political upheaval. These supposedly principled people couldn’t agree on actual proposals to increase taxes or cut programs.

Instead, they called for the Government Accountability Office to issue an annual report detailing the government’s fiscal health. They also endorsed legislation introduced last year that would create “rescue committees” to recommend fixes for Social Security, Medicare and other trust funds that are projected to become insolvent.

And they called for adopting goals for managing the debt, such as setting a limit based on its share of the economy. Such a move, they said, “would reduce debt-limit brinkmanship as long as the budget remains on a responsible path.”

It would serve them right if the GAO read Kelton’s book and concluded, as she does, that they are dangerously wrong. By the way, the Fed disagrees with these spineless wonders, and says more fiscal stimulus is needed. It goes without saying that the Fed is more likely to be right than legislators mired in the economics and politics of the past.

Kelton calls for a Copernican Revolution:

MMT changes how we view our politics and economics by showing that in almost all instances federal deficits are good for the economy. They are necessary. P. 7.

There is no doubt that Modern Monetary Theory would require a revolutionary change in our understanding of economics. Here’s a tweet from Paul Krugman [2]:

No revolutionary thinking needed says Krugman, carry on. I assume this is a reference to Krugman’s general view that the US can borrow cheaply thanks to the low interest rates set by the Fed, and that bonds will be issued to “pay for” economic support. That’s not what’s happening. The Fed is buying the securities issued by the Treasury to “pay for” whatever Congress said to pay for. Between February 27 and May 31, the national debt increased $2.4 trillion while Fed holdings of treasuries increased by $1.657 trillion. [3] In other words, the Fed bought about 70% of the new issuance, simply by marking up the Treasury’s account at the Fed. That’s blatantly creating money out of thin air. It’s important to add that no one is going to pay off the securities owned by the Fed unless the Fed decides to sell them to third parties. I wonder if the 60 Representatives who signed that letter know that. Or care. Or understand why it’s relevant.

Kelton takes up six myths about the economy in her book.

1. The US government should budget itself like a household.
2. The deficit is evidence of overspending.
3. Deficits will burden the next generation.
4. Deficits crowd out private investment undermining long-term growth.
5. Deficits make the US dependent on foreign investment.
6. Entitlements will cause a huge future problem.

Then she discusses our real crises:

The fact that 21 percent of all children in the United States live in poverty—that’s a crisis. The fact that our infrastructure is graded at a D+ is a crisis. The fact that inequality today stands at levels last seen during America’s Gilded Age is a crisis. The fact that the typical American worker has seen virtually no real wage growth since the 1970s is a crisis. The fact that forty-four million Americans are saddled with $1.7 trillion in student loan debt is a crisis. And the fact that we ultimately won’t be able to “afford” anything at all if we end up exacerbating climate change and destroying the life on this planet is perhaps the biggest crisis of them all. These are real crises. The national deficit is not a crisis. P. 11-12.

And I’ll add one more: the grotesque skewing of wealth and income to white poeple is a crisis.

This book is a joy to read. It’s written for non-economists. The language is lucid and precise, with no jargon. I hope people will discuss it in the comments as I move through it. I’ll try to answer any and all questions to the best of my ability.

I will also add my own comments, but I will separate my thinking from Kelton’s. I know of two areas I want to discuss in more detail. First, as I see it MMT is an example of a pragmatic approach to the study of economics. I offer a primer on pragmatism in three posts, here, here, and here. In contrast, mainstream economics rests heavily on Bentham and Mills’ Utilitarianism, but it’s buried deeply in the history of economics, and is never discussed as a normative principle. For an introduction to this area, search the site for William Stanley Jevons.

The value of pragmatism is that it strives to be non-normative. It leaves discussion of what should we do to political or some other discourse. Mainstream economics claims to know how things should be: the market is all-knowing and politics should never interfere with its operation.

This book lays out an argument for MMT as the foundation for an economics for progressives. It offers an understanding of the way our government funds itself which can free us from the constraints demanded by the rich and powerful. It shows us how to use federal monopoly control over money for the benefit of all of us, not just the filthy rich. With this book, we can master the basic concepts and teach them to our friends and neighbors, and especially to our politicians.
========

[1] My original plan was to discuss John Dewey’s The Public and Its Problems, but that was derailed by a bad case of quarantine brain. I’ll return to that excellent book next. One of the reasons to discuss that book is that Dewey, the leading pragmatist, opens with a discussion of that theory.
[2] I replied to this tweet.
[3] The Fed’s weekly balance sheets are here. Debt figures from the Treasury are here.

[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

Deficit Hawks Screeching In The Background

The deficit harpies are warming up in the background. [1] Inflation is just around the corner, they shriek, by which they mean Democrats might take over government. There must be a handbook in which their arguments are laid out probably in red ink. They claim that whatever the Fed and the Treasury do to help anyone has to be paid for sooner rather than later by increasing taxes. Those taxes will fall heavily on the capitalists, which (or who) will destroy economic growth. They claim the government is sucking up all the investment capital, which chokes growth. They say the vast amount of debt will hurt the standing of the US in international finance. It’s predictable and this time it’s silly.

1. The numbers. Congress has authorized $2.2 trillion in spending to deal with the economic impact of the Covid-19 crisis. That’s on top of other spending in a budget originally proposing a deficit of $!.1 trillion. With other spending on Covid-19 issues and reduced tax revenue, the current estimate for fiscal 2020 is about $3.8 trillion. We can reasonably assume another $1 trillion will be needed for states and municipalities, treatments and vaccines, and support for hospitals.

2. Funding Covid-19 expenditures. The US deficit is funded by the sale of US Treasury obligations. Sales are handled by a group called Primary Dealers, who act as market makers in Treasury securities. [3] In the past most of the debt is has been purchased by financial institutions for their own accounts or for the accounts of investors, or by the central banks of other countries. In the current crisis, the Fed has promised to buy all the Treasury debt. Here’s a good explainer. [2]

To get a picture of the situation, in the two months ended 30 April 2020, the national debt held by the public increased by $1.645 trillion. In the comparable period the Fed’s holdings of Treasuries increased by $1.448 trillion. The projected deficit during that period was about $183 billion, so we should estimate the increase in the total debt includes that amount. If we deduct that, we get an estimate of the amount of debt issued on account of the Covid-19 crisis of $1.462 trillion, meaning that the Fed purchased substantially all of the Covid-19 debt.

3. So what? The fear-mongering is based on two speculations: that the federal debt will have to be paid, or that interest rates will somehow increase, and either will have to be paid out of current tax revenues. In either case, we will have to increase taxes. [5] Another theory is that the Fed will have to sell off the Treasuries it bought into the private markets which will be bad for some reason.

The good news is that the Fed can just return the Treasuries to the Treasury in the form of a dividend, or a remittance in Fed parlance, and the debt drops by a like amount. Or the Treasury could pay off the securities and the Fed could remit that payment to the Treasury. If the Fed wants to hold the securities to help it control interest rates or for other reasons, it can just remit the interest payments to the Treasury.

Why would anyone think otherwise? That is the power of neoliberal ideology, which has taken root in the minds of practically every media personality and Twitter economist. There was a moment after the Great Crash when similar questions were raised, but no one paid any attention to see what happened after that, which was a big fat nothing.

It’s possible that the Treasuries aren’t the problem, it’s all the trillions of new dollars flooding the world that will cause inflation. This might actually happen in different circumstances, so it requires a bit of explanation.

1. Demand has fallen dramatically as we cope with lockdown, and in turn, income to business and working people have collapsed. This new money is largely going to people and businesses who need it to replace part of the income they would usually derive from their normal business activities or from employment. It won’t create new demand as it might have six months ago. It just replaces lost income, enabling people and businesses to avoid bankruptcy. It’s true that there are inflationary pressures on certain things, such as medical supplies and equipment. That’s just normal capitalist price-gouging, and unlike similar cases, say, lumber after hurricanes, won’t be prosecuted.

2. Most US business sectors are oligopolies, meaning that three or four companies control 80% or more of revenues. This is certainly true in the medical sector, including the drug business. Thus, salvaged demand paid for by the new money will flow to capitalists. It may be that some will be needed to expand production in some areas and reduce production in others. The rest will go to capitalists, in the same way the Trump tax cuts did, in the form of dividends and stock buy-backs. It is highly unlikely to have a serious inflationary effect.

3. If, however, there were a problem, there is a solution. Congress can increase taxes. The good news is that it can do so in a way that won’t actually impact working people. Congress can hike taxes on the capitalists and on capital.

a. This makes sense in an oligopolistic economy, which is by definition not competitive. When capital flows into oligopolistic businesses, some of the money goes into some new productive use. The rest goes to capitalists. Taxing oligopolistic profits away means that there won’t be inflation in the things only capitalists buy, giant yachts, private jets, politicians, and political favors, for example. Taxing them is doing a service in tamping inflation that only affects them.

b. Republicans will choke on tax hikes. But if inflation driven by all the new money is a problem, it’s one they caused. They threw away any claim to their version of fiscal responsibility when they cut taxes on the rich in the middle of an expansion. If inflation arises, they can’t expect the Fed to fix it for them, because they wouldn’t be able to survive the depression that would cause, just as Carter couldn’t survive the Volcker recession.

c. If this sounds like a layman’s take on Modern Money Theory, well, it is. I hope I got it right.

Update: Shortly after I posted this I saw this headline in the Washington Post: Top White House advisers, unlike their boss, increasingly worry stimulus spending is costing too much.
======
[1] Here are some examples. This is a fairly restrained version. Here’s one from the Federalisr; I read it so you don’t have to, it’s ridiculously wrong on everything, including the conclusion:

In summary, the newly proposed bailout and stimulus packages smack of big government welfarism and crony capitalism. These are the sort of policies that will move the needle toward socialism, impoverishing us and stripping the productive engines of our economy.

I think the writer is worried about our precious national bodily fluids.

Here’s one from a columnist for the Arizona Republic, saying that this is bad, bad, even if the guy has been expecting disaster his entire career. It’s easy to see how this guy scared himself with numbers.

Here’s one explaining that the Fed buying municipal securities from towns and states shifts tax burdens to national taxpayers. That’s aimed specifically at my home state, Illinois, and I hope every shithead who makes this argument loses 75% of their deferred income. Here’s one from the occasionally sober SeekingAlpha.

One more from USA Today, complete with towering red bar graphs.

[2] After the Great Crash, the Fed made a similar promise. Buying and selling Treasuries is one way the Fed controls interest rates. And it’s worth noting that Treasuries are often used by financial institutions in various short-term transactions, such as repurchase agreements, and as collateral for short-term loans, rather than as investments or savings.

[3] Here’s the Wikipedia entry on Primary Dealers, which lists the current dealers.

[4] The Fed’s weekly balance sheets are here. Debt figures from the Treasury are here.

[5] This idea never surfaced from the Republican wing of deficit hawkers when the Republicans insisted on tax cuts in the middle of an economic expansion. And for Grover Norquist, I note that a government small enough to drown in a bathtub has proven to be a nightmare in responding to Covid-19. Norquist and his groupies drowned the federal government’s administrative ability to cope with the pandemic.

Where’s the Beef? Republicans Don’t Understand Critical Infrastructure and Supply Chains

Over five weeks of a mostly-national shutdown, we never figured out how to protect essential workers.

By April 9, at least 9,000 health care workers — people trained in the proper use of personal protective equipment — had the virus and at least 27 health care workers had died. More than half had no known exposure to COVID outside of their work.

During the period of the shutdown, outbreaks occurred throughout the meatpacking industry, leading to shutdowns in a number of factories.

As a result, we’ve got meat shortages even as farmers have nowhere to sell their livestock. There were reports that a fifth of Wendy’s restaurants have run out of beef.

Stephens analyst James Rutherford said that a study of online menus for every Wendy’s location nationwide revealed that 1,043 restaurants — or 18% of its national footprint — have listed beef items as out of stock. More than 100 locations are still selling Wendy’s chili, which contains beef.

The shortages vary by state. Hundreds of Ohio, Michigan, Tennessee and New York restaurants are out of beef, while other states’ menus do not indicate any supply chain issues.

A Tectonix GEO analysis shows one reason why: people from one of the heavily affected areas traveled throughout the country. That suggests one possible way COVID has spread to a bunch of relatively remote factories was truckers serving the industry. I’ve heard inspectors also likely spread the virus between factories.

There were COVID clusters in a number of other professions that remained open during the shut-down: cops, prison guards, public transport workers, grocery store workers.

We never figured out how to protect these critical workers when it was relatively easy, when they and other essential workers made up most of the people on public transportation, when they were the only people relying on child care. That’s partly because we never managed to get the PPE and test and tracking systems in place to keep them safe.

And as a result, as the meat industry shows, our failure to protect critical workers has led to strains in a key part of our food supply chain, impacting consumers and suppliers up and down that supply chain.

Coronavirus has even threatened parts of our economy more directly responsible for keeping people alive. Before we shut down, for example, our Air Traffic Control was buckling, as the virus spread among workers in the close spaces of control towers.

If we were a sane nation, focused on the public good rather than bottom line dollars, we would have spent the five weeks of national shut-down figuring out how to protect critical workers and implementing those systems wherever workplaces had not shut down. We would have used that time to test the system and build up stocks of PPE and test kits needed to replicate the system in other, less essential work places. We would have perfected systems for keeping workers safe in the time of COVID, so we could learn how to do it while it was relatively easy, giving us something to replicate when the economy reopened.

We’re not a sane nation. We’re largely not focused on the public good.

And as a result, during the entire five weeks of the shutdown, we watched in fascination at what happens when you continue to work without implementing adequate measures to limit the spread of COVID without taking the obvious lessons from it. Again, we watched that happen at a time when it would have been easier to protect critical workers, because they were interacting with a limited number of other people. As the economy reopens, it will get harder to protect such workers, because there will be more people using public transportation and in grocery stores and relying on child care, increasing the likelihood that a single case can spread to more people, each potentially leading to the shut-down of an entire workplace three weeks later.

By failing to solve the problem of how you protect workers, those rushing to reopen the economy have set this country up for key failures in our rickety supply chain. Some of those failures will be nuisances, with factories idled because they’re missing a key part or shortages of non-essential items in stores. Some of the failures could lead to further health consequences. Some failures may happen in industries where workers are a lot harder to replace quickly. Those failures will make it harder for businesses that are open, as any outbreak will add to already inflated costs of operating, to say nothing of the blow to confidence such failures will bring.

It turns out, a lot of Republicans don’t understand how our economy works (though the same misunderstandings lay behind their opposition to bailing out the auto industry in 2008). They don’t understand that if critical parts of our fragile system break down, other parts begin to break down, potentially setting off a chain reaction.

And as a result, they’re rushing back to reopen the economy without first having done the basic things needed to operate businesses safely.

Yes, we need to take steps reopen the economy for the sake of the economy and our collective sanity. Which is why it was so important for the Federal government to put the pieces in place that would facilitate reopening the economy during the shut down. Only, the Trump Administration did not do that. It squandered the sacrifice made by the 33 million Americans who lost a job in that period. Now, not having put those pieces in place, the Trump Administration is pushing to reopen the world’s largest economy relying on little more than homemade masks to keep it running.

Live and Let Die: The Data Manipulation Begins

From the beginning of the coronavirus crisis, various entities in the United States were always engaged in the kind of dishonesty we accuse China of to hide the extent of the virus. Trump tried to keep a cruise ship off shore so it wouldn’t count against “his” numbers. States everywhere didn’t reveal the crises in nursing homes by hiding where they were occurring. Other states refused to track known COVID-19 deaths because they didn’t occur in a hospital.

But now that Trump has fully committed to reopening the economy before the shut down has its desired effect, he and allied governors are engaged in more aggressive data manipulation to hide the stupidity of what they’re doing.

Georgia had long manipulated its data, by rigging cut-off numbers to make it look like the only outbreaks were around Atlanta and in the Black Belt outbreak around Albany. But as Brian Kemp moved to reopen Georgia in the stupidest possible way, the state shifted its reporting to show confirmed cases.

That means it can always show a trend of declining cases that would match White House guidelines for reopening, rather than the plateau the state actually has, because the trend reflects known cases that aren’t counted yet.

Interestingly, Georgia may also be hiding the extent to which this virus has moved beyond predominantly African-American areas, thereby hiding that Kemp’s stupid decision is actually killing white people, too.

Meanwhile, Arizona’s Doug Ducey, who already lost the state’s experienced emergency manager, just ordered some  epidemiologists at the state’s public universities to stop work on a COVID model that used the states internal data, because their model showed the only way to avoid exponential growth would be to stay closed until the end of May.

The universities’ model had shown that reopening at the end of May was the only scenario that didn’t dramatically increase cases.

In late April, Tim Lant, a mathematical epidemiologist at ASU, said the model showed five different scenarios for how the disease could progress in Arizona, depending on how social distancing efforts were relaxed.

The slowest curve, based on if the state reopens at the end of May, is “the only one that doesn’t put me immediately back on an exponential growth curve,” Lant said in April. That’s because transmission rates would be lowest at that time, he said.

“I can say, scientifically, no, it’s not safe to reopen unless you’re planning on, you know, shutting down again after a couple of weeks, and we can help figure out what the appropriate amount of time is to stay open before we shut down,” he said.

Bailey wrote that health department leadership asked the team to “pause” all work on projections and modeling. The department would also be ending access to special data sets the modeling team had been using for their efforts, Bailey said.

Finally, yesterday the White House tweeted out the model that is has embraced in lieu of models by epidemiologists.

This release is an effort to rebut WaPo reporting on how this model — by the guy behind the Dow 36,000 book, Kevin Hassett — continues to be pulled out of Hassett’s ass whenever Trump needs to be told something he wants to hear.

The epidemiological models under review in the White House Situation Room in late March were bracing. In a best-case scenario, they showed the novel coronavirus was likely to kill between 100,000 and 240,000 Americans. President Trump was apprehensive about so much carnage on his watch, yet also impatient to reopen the economy — and he wanted data to justify doing so.

So the White House considered its own analysis. A small team led by Kevin Hassett — a former chairman of Trump’s Council of Economic Advisers with no background in infectious diseases — quietly built an econometric model to guide response operations.

Many White House aides interpreted the analysis as predicting that the daily death count would peak in mid-April before dropping off substantially, and that there would be far fewer fatalities than initially foreseen, according to six people briefed on it.

Although Hassett denied that he ever projected the number of dead, other senior administration officials said his presentations characterized the count as lower than commonly forecast — and that it was embraced inside the West Wing by the president’s son-in-law, Jared Kushner, and other powerful aides helping to oversee the government’s pandemic response. It affirmed their own skepticism about the severity of the virus and bolstered their case to shift the focus to the economy, which they firmly believed would determine whether Trump wins a second term.

[snip]

By the end of April — with more Americans dying in the month than in all of the Vietnam War — it became clear that the Hassett model was too good to be true. “A catastrophic miss,” as a former senior administration official briefed on the data described it. The president’s course would not be changed, however. Trump and Kushner began to declare a great victory against the virus, while urging America to start reopening businesses and schools.

The effort to prove the value of the epidemiological models done by people who are considered frauds within their actual profession of economics comes as the CDC’s own model showing an increase to 3,000 deaths a day was leaked. And the Council of Economic Advisors released this line-drawing exercise comes as the US has blown by Hassett’s original estimate of 60,000, one also adopted publicly by Trump.

Understand: This is not just an attempt to lie about the sanity of the decision to reopen the economy even as COVID cases continue to grow. It’s an attempt to lie about the stupidity of the economic decisions Trump made, too.

While other countries have had more cases per population, that has happened with economic relief focused on actual human beings rather than cruise lines and luxury hotels. Here, much of Trump’s economic policies have been just another attempt to loot the economy for his friends and campaign donors. That has made the economic impact of all this in the United States worse than it is in other countries, and it will only continue to get worse.

Some places that reopen prematurely will be forced to shut down again. And as more people are out spreading the virus, more bottle necks in critical infrastructure will be exposed.

Trump has pursued the worst of all policy options. After his initial dawdling let the virus spread in some cities, he endorsed shutting down the economy in an attempt to mitigate the pandemic. That had a predictable catastrophic impact on the economy (and more unemployment numbers will be out today). But because Republicans refused to adopt policies that would actually cushion that crash, the impact was much worse than it might have been.

Now, after taking the full hit of shutting down, Republicans are insisting on reopening — bolstered by their fraudulent charts and graphs — before the shutdown has any lasting epidemiological value. We’ll have the medical impact of a herd immunity approach, with the economic impact of a badly executed mitigation strategy. The worst of both options.

And to pretend that this is not all knowable and known now, Trump has swapped briefings by medical experts for photo ops set to campaign music, to the apt Live and Let Die.

Update: Meanwhile, Florida just removed details of possible positive COVID cases in January and February from a public website.

Long Overdue Policies that Look Obvious in the Age of Pandemic

I’m not usually a fan of George Packer. But I keep coming back to this column, We Are Living in a Failed State. The coronavirus didn’t break America. It revealed what was already broken, which is something I might have written. It argued that this pandemic, to which the US responded like a corrupt poor country, was actually the third crisis of this century, and our responses to the previous two — 9/11 and the Iraq War, and the Wall Street crisis — simply brought this country to the place where Trump could loot it.

Like a wanton boy throwing matches in a parched field, Trump began to immolate what was left of national civic life. He never even pretended to be president of the whole country, but pitted us against one another along lines of race, sex, religion, citizenship, education, region, and—every day of his presidency—political party. His main tool of governance was to lie. A third of the country locked itself in a hall of mirrors that it believed to be reality; a third drove itself mad with the effort to hold on to the idea of knowable truth; and a third gave up even trying.

Trump acquired a federal government crippled by years of right-wing ideological assault, politicization by both parties, and steady defunding. He set about finishing off the job and destroying the professional civil service. He drove out some of the most talented and experienced career officials, left essential positions unfilled, and installed loyalists as commissars over the cowed survivors, with one purpose: to serve his own interests. His major legislative accomplishment, one of the largest tax cuts in history, sent hundreds of billions of dollars to corporations and the rich. The beneficiaries flocked to patronize his resorts and line his reelection pockets. If lying was his means for using power, corruption was his end.

Packer ends with a call for renewed solidarity.

But he might as well also call for a fix to all the failures of the past twenty years. Right now, mind you, Trump is failing, miserably, in part because he believes maximizing the opportunities for looting by his friends is all the policy he needs.

But the sheer scale of the crisis makes policies that long made sense for the United States more urgent and far easier to justify. I plan to keep a running list of those policies.

Medicare for All

No one has figured out how all the people put out of work by the shut-downs will pay for COVID-related health care. Trump has persisted in a plan to kill Obamacare, and some badly affected states never even expanded Medicaid.

Early reports suggested that Trump’s administration has claimed it is willing to pay hospital bill, so long as they pay those bills directly (thereby avoiding establishing a policy, I guess). But with so many people out of work and with hospitals reeling from the shut-down, the far better solution is to make Medicare available to all.

Universal Basic Income

The US government has been backing credit for big industry and tried, but failed, to provide free money for small businesses to keep their employees on staff. Instead, 26 million Americans have applied for unemployment, a sixth of all workers (and a third of all workers in MI, KY, and RI). Meanwhile, the Administration botched even a one-time $1,200 payment.

The government could better ensure that markets don’t crash entirely–and keep states from buckling as they try to serve all these unemployed people–if they simply gave a UBI to all people, as Spain has decided it will do. By keeping it, the US might be able to address the underlying inequality problems that have led to such a disproportionate impact of COVID on communities of color.

Decarceration

Closed spaces, generally, amount for a huge percentage of COVID cases and (in the case of nursing homes) deaths. ACLU just rolled out a paper that argues the models for COVID (which were originally based off other societies’ social patterns, including their prison system) underestimate the total number of deaths because they don’t account for the spread in our prisons.

COVID will remain lethal for long enough that states and the federal government will need to achieve some level of decarceration to prevent the prisons from becoming a source of spread to the wider community (as they have become in the localities with harder hit prisons).

In this case, even before COVID hit, there was bipartisan support to wean ourselves from overincarceration. Prisons will become less lucrative in conservative communities, especially as some states begin to end prison gerrymandering (which gives rural communities representation for prisoners who can’t vote, just like slavery did).

So now is the time to end incarceration for minor crimes, and improve the humanity of incarceration for those who need to be jailed.

Deindustrialization of the Food System

We’ll be lucky if we avoid famine conditions. That’s partly because our food system has the same institutional/retail split our toilet paper supply chain does, meaning the market for half of the food out there disappeared when restaurants and other institutional buyers shut down. That’s partly because bottlenecks in our food supply chain — most notably, thus far, meatpacking plants, but there will be others — have further undermined the market for our plentiful food production. And that’s partly because Trump’s farmer support, thus far, has emphasized direct payments that are effectively a continuation of his earlier bribery of farmers whose markets his trade war screwed, rather than purchasing up surpluses to provide to food banks.

Trump hasn’t shown an ability to get any other needed supplies where they’re needed; it’s unlikely he’ll do better with food.

Meanwhile, food supplies that bypass these commodity markets remain. We need to make this food supply chain more resilient and one way of doing so is to bypass the industrial bottlenecks.

Broadband as a Utility

When schools shut down, it suddenly became acutely visible how many Americans — both rural and urban — don’t have broadband. While some areas have gerry-rigged solutions (like driving wifi-enabled busses to poorer neighborhoods) to get some kids online and learning, that’s not possible everywhere. And even for adults, it takes broadband access to be able to social distance.

Trump is already talking about using infrastructure investments to get America working again. Extending basic broadband as a utility should be part of that.

Update: Arne Duncan describes what needs to happen for existing efforts to expand broadband access to be really effective.

Industrial Policy

Two months after we first identified shortages in necessary medical supply, we’ve barely managed to switch production to those necessary objects, even as entire factories were otherwise shut down. We’ve got shortages of not just testing kits, but the underlying supplies. We’ve got drug shortages too (and had them, even before the President started pitching miracle cures).

It’s long past time to admit that we do have an industrial policy — but right now, it’s focused on building the troubled F-35, not ensuring that the United States has the ability to build the things we need domestically, even if we interact openly with the rest of the world. This story uses the failed lithium battery investments Obama made, largely in Michigan, to talk about how we came to be unable to supply our own medical equipment.

We have an industrial policy. We just need to be willing to match that policy to our society’s real needs, not exporting warmongering.

Three Things: Erasing, Erased, Erasure

[NB: check the byline, thanks! /~Rayne]

There are so many more than three different items under this theme, I could write a book about this. But in the interest of time and resources, I’ll opt for simplicity.

You are being erased if you haven’t been already.

~ 3 ~

Writer and former business consultant Anand Giridharadas shared an excerpt yesterday from a financial adviser’s newsletter to clients.

Transcript:

[…] I just got a great leak that I want to share with you from someone’s financial adviser. You may have a financial adviser. This is a financial adviser trying to advise people what would happen to America if Elizabeth Warren was elected president. And by the way I think a lot of this would apply to Bernie Sanders if he was elected president as well. I think there’s a similarity. And so what would a Warren presidency do to markets. I just want to read some of this to you because it really is hilarious obviously in a way that these boring people did not intend.

And um, so they say, “We have been getting increasing inquiries to address the potential market of her policies as she has gained a lot of momentum over the last couple of weeks.”

And um, it says, “To be clear we do not get involved in political opinions.” To be clear. “So we did a surface level dive on her platform,” they say, “and our intention is to understand the market implications,” they say, and I quote, “Many of these policies are designed specifically to reduce corporate profits and earnings, and instead use those funds to benefit number one workers, number two the environment, number three those with lower incomes, and number four,” oh gosh,”women and minorities. It is important to understand that Warren’s policy goal is to reduce the retained earnings of businesses across multiple sectors and to benefit other parties as mentioned above. As such it is very reasonable statement that if Warren were elected and those policies were enacted it would likely be negative for the stock market because stock prices are an expectation of future earnings.” And so on and so forth.

“The policies would hurt corporate earnings universally,” it says, “although they would likely improve quality of life for many demographics at the expense of corporate profits. Whether that trade-off is positive or negative is not our place to say.” People, stocks, which is better? We don’t know. “We are simply focused on facts. Again, we do not get involved in political opinions,” it said. So now they break it down in case this is not obvious enough, good for people, bad for, for uh, stocks, in case that’s not obvious enough they break it down by policies. Let’s just go through that, shall we? Is that okay? You got time? I got time. I’m in a hoodie.

“Number one ban fracking. Warren wants to ban fracking for oil and gas based on environmental concerns.” Now they do a nice thing where they do who’s this negative for, who’s this positive for, super helpful. “Negative for energy companies and indices, positive for the price of oil/gasoline, supply would be reduced.” Uh, that’s interesting.

“Policy number two eliminate private prisons. Warren wants to end federal contracts to private prisons and withhold funding to make state and local governments do the same. Materially negative for private prison stocks,” ooh, that would be rough for them, yeah.

“Reinstate Glass-Steagall. Warren wants to reinstate the law that separated commercial banking and investment banking. Negative for the major investment banks — JPM, MS, BAC, GS, et cetera, as they would likely have to spin off retail banking operations.

Policy number four, increase taxes on the wealthy. Warren is advocating an ultra-millionaire tax on the 75,000 richest families in the U.S. along with other tax increases aimed at high earners. This could reduce disposable income. Negative for consumer discretionary retail sectors and lingerie stocks. She wants to double the national minimum wage,” they say, “from $7.25 to $15.00. Negative for the entire stock market, the entire stock market,” well, then maybe some more people would be able to buy stocks. “And small business margins. This would significantly compress corporate margins across industries and would result in a reduction of expected earnings for the S&P 500. Those negative effects would be some partially offset,” it goes on, “by more disposable income from minimum wage earners.

“Number six, Warren supports the Family Act, which would create paid national family and medical leave for up to 12 weeks. Negative for small businesses. For large corporations, not much of an impact.” Uh, you know, there we go.

“Number seven agribusiness, breaking up agribusiness.” In fact maybe even break up the word agribusiness into two separate words, agri and business. “Most of the country’s and world’s meat and agriculture production is concentrated in a few major companies. Warren wants to break up these vertically integrated agriculture and food companies. Negative for the agriculture sector, companies in the ag stocks as well as pesticide producers.” And so on and so on.

“The bottom line from a market standpoint is that these policies will be negative for stocks with some being downright negative for the broad markets. How negative would they be for stocks? No one knows exactly.” But this is where it gets interesting. “Again, this doesn’t mean these policies don’t have winners. These are policies designed to reduce retained corporate earnings in favor of other things Warren and her supporters deem more important. So voters will decide if they want to support that type of trade-off. Everyone has their hierarchy of what’s important.”

This is where it gets, we’re getting into Kant here, this is philosophy here in a financial advisor’s report. You gotta pay extra to get to this paragraph. “Everyone has their hierarchy of what’s important, and Warren is an unapologetic populist, who if in power would enact policies designed to reduce corporate earnings to benefit other stakeholders,” parentheses, “workers, the environment, et cetera.” So, I think like all people and the planet are (air quotes) other stakeholders.

“Regardless of your opinion of that strategy it is important to understand that investment accounts would likely be negatively affected under these policies, and if they become reality, we need to take steps to mitigate that damage. As we move closer to the election we’ll obviously be keeping close watch on the implications of the Democratic primary giving you market intelligence on what the headlines mean for stocks going forward.”

They also want to reiterate that this is not political.

It boggles the mind to think that workers, the environment, women and minorities are just sucking drains on the audience for which this opinion piece was written.

We’re roughly 75% of citizens and the entire natural physical world but we’re just an inconvenience drawing down on corporate profits.

We’re not 75% of human beings who’ve been driven over roughshod, had our labor stolen from us for compensation less than subsistence, and the steadily destroyed environment which all of us share and in which we live.

How easily we are erased from consideration by the plutarchy.

One upside: now we know with certainty the financial industry views Warren as both a serious contender for the Democratic nomination and a threat.

Downside: we know, too, that in spite of their B-school education the financial industry is still as dumb as a box of rocks, likely to trash the entire economy and the planet, because they can’t see outside of the rut they’ve been in forever, where only white men have capital and make economies. They are incapable of seeing the untapped promise for stock market growth and saving our planet, locked within more than two decades of stagnant wages, monopsonic job markets, and millennia of toxic colonization.

Note how health care wasn’t at all mentioned; the financial sector is incapable of seeing the benefits to the broader markets if businesses were freed of the burden of health insurance shopping and premium payments.

~ 2 ~

In 1986 I worked for a small machining business. My boss was a bigoted lecher, I’ll be frank. It wasn’t unexpected when he told me if I got pregnant while I worked for him he’d fire me. Fortunately having kids wasn’t yet in the cards for me and I could afford to ignore his misogyny though I couldn’t afford to quit.

In 1988 I applied for a job with a business that did custom manufacturing. I was offered the job but turned it down because their health insurance didn’t cover women’s reproductive care or maternity coverage and they didn’t expect to offer it any time soon, especially since I’d be only one of two women on staff. I took a job with a Fortune 100 company instead; their plan had women’s reproductive care and maternity coverage.

In 1989 my supervisor at that same employer told my older female co-worker he had a limited amount of money to offer his department staff of 10, two of which were male. “I have to give the boys raises because they have families to support.” Never mind that this older woman had teenagers at home, or that the rest of us junior female staff members assisted these two male staffers, or that we might have wanted families we couldn’t yet afford.

In 1993 I got pregnant the month the company fired my supervisor’s equally misogynist boss. I swear the egg waited to drop until I had a new female department head. She was understanding and considerate even though she’d never had any kids of her own.

In 1997 after three years in a new department, I became pregnant with my second child. My boss was itchy and weird throughout my pregnancy, increasingly so over time. You’d think a lawyer would know better than to ask every week during my seventh and eighth month when I was due and was I going to go on leave soon. I had to go to HR to ask for an intervention; I left a week before my scheduled delivery.

It’s not just my own experience; my sister ran into friction from her Fortune 500 employer while she was pregnant. Thankfully she had support from both HR and her union — just not the men she worked with. I can’t tell you how many female friends have likewise been harassed at work for being pregnant.

Don’t get me started about simple systemic problems. Ever tried to sit in one of these for several hours while eight months pregnant?

Academic Chair-Desk

When Elizabeth Warren said she was fired when her pregnancy became visible, I believed her. I am furious with news media outlets for entertaining the idea this was ever not true, or that this isn’t a continuing problem today.

[Let’s not forget the outlet which propelled the attack on Warren was the same one which was tasked with the original Trump dossier — Washington Free Beacon. Are they using material from a Warren dossier?

Let’s not forget, too, that outlets like CBS which continued to poke at Warren have had a wretched history of treating women poorly — or has everyone already forgotten Les Moonves and his nasty habits, including blackballing Janet Jackson for a wardrobe malfunction?]

Think back upon your education and work experience; how many times during K-12 education do you recall seeing a pregnant teacher? I never did any time between 1965 and 1978, and more than 85% of the teachers I saw were female, most of childbearing age. I don’t recall seeing a pregnant instructor during college at all.

How many times did you see a pregnant woman in the workplace? I didn’t until I was in my 30s and having kids myself.

And now my daughter has to put up with crap regarding reproductive health coverage, more than 30 years after I had to turn down a job for not having it as part of their benefits. Why has this not changed for the better? Why is it worse because our government  has now butted into the mix to make it worse rather than ensuring we all get the health care we need regardless of gender?

Why is the essential human fact that women need reproductive care or maternity coverage still something we must fight for against the plutocratic patriarchy which wants to deny it and erase us?

~ 1 ~

There’s a theory that stingy millennials are to blame for the sluggish economy, said financial news network CNBC, parroting investment firm Raymond James.

Are you fucking kidding me?

When 40% of Americans can’t muster $400 cash for an emergency, it’s not stinginess that they aren’t stimulating the economy.

When the reason so many Americans are strapped is because of debt, it’s not stinginess.

When 45 million American students and parents hold educational debt amounting to  ~$1.5 trillion — more than what Americans owe on their credit cards or auto loans — it’s not stinginess.

When minimum wage workers across the entire country can’t afford rent on 2-bedroom apartment, it’s not stinginess.

When 25% of Americans ages 18-64 report having problems paying medical bills, it’s not stinginess.

Somehow the financial sector including media dedicated to covering it have erased all the other reasons why millennials — Americans born between 1981-1996 (23-38 years old) — might not be able to fully participate in stimulating the economy.

Conveniently, the several hundred uber wealthy families represented at the far right of the interactive graphic in the tweet below don’t worry at all about erasure.


They own the erasers.

~ 0 ~

This is an open thread.

image_print